Friday, May 15, 2009

In the wake of the Madoff scandal and other pyramid schemes, the SEC yesterday proposed rule amendments requiring investment advisers who maintain custody of their clients' assets to subject themselves to surprise exams by the SEC.

The full text of the proposed amendments is expected to be published shortly. Once published, the proposal will be subject to a 60-day public comment period.

The House Committee on Financial Services held a hearing on May 7th which included a discussion of a bill that would repeal Section 203(b)(3) of the Investment Advisers Act of 1940 (the "Private Advisor Exemption"), which exempts investment advisers from SEC registration if they have fewer than 15 clients. The bill, designated H.R. 711: The Hedge Fund Advisor Registration Act (the "Act"), was introduced on January 27, 2009 by Rep. Mike Capuano (D-MA) and Rep. Mike Castle (R-DE) and can be accessed here. If enacted, the Act would subject all investment advisers to SEC registration.

The New York Times reports that the New York State Attorney General, Andrew M. Cuomo, has reached a settlement with The Carlyle Group relating to Mr. Cuomo's investigation into the activities of placement agents involving New York State pension funds. Carlyle agreed to pay $20 million and make significant changes to its use of placement agents and other intermediaries that it uses to attract investments in its investment funds. Carlyle will be prohibited from using intermediaries in order to gain introduction or access to officials at public pension funds. In addition, Carlyle's executives and their family members may not make campaign contributions to officials who have oversight responsibility with respect to pension funds for a period of two years after having done business with the pension fund. Carlyle will also have to disclose any contributions it makes to a politician in a state in which it does pension fund business.

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